Inflation leads off 2023 with a comeback
Tiana Lowe
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Whatever inflation relief the end of 2022 seemed to give the country has come to a standstill. According to data from the Bureau of Labor Statistics, consumer price index inflation skyrocketed from December of last year to this January, with CPI inflation stagnating at 6.4% at an annualized rate.
President Joe Biden may be boasting that the worst inflation in 40 years is receding, but Federal Reserve Chairman Jerome Powell remains perturbed, with the Fed signaling its commitment to bring the federal funds rate past 5% and keep it there through the year. And based on these numbers, why wouldn’t it?
BIDEN FORGETS THE MIDDLE CLASS PAYS FOR HIS INFLATION
Prices rose by half a percentage point from December to January. Considering that the Fed continues to target 2% inflation per year, that’s a quarter of the entire inflation allowance granted by the central bank. Core CPI, the Fed’s preferred measure that subtracts the volatile categories of food and energy, also rose by 0.4% from December to January. On an annualized basis, core inflation came in at 5.6%.
Disinflation (the process of inflation-abating, not prices themselves falling back to their pre-2022 levels) is decelerating to an unsettling pause, and the devil is in the details. While core goods inflation has fallen to the Fed’s target of 1.4% on an annualized basis, with some actual deflation (that is, the actual decrease of prices themselves) throughout, core service prices have consistently skyrocketed by half a percentage point each month. In tandem with way-too-hot-to-handle employment numbers, the 7.2% increase in core service prices over the past year gives Powell every reason to keep ramping up rates not just in accordance with the Fed’s undying commitment to the Phillips Curve, but also to prevent a wage-price spiral.
While the Fed doesn’t discount its odds of pulling off a soft landing, that doesn’t mean that the worst pain isn’t yet to come. Right in time for the highest interest rates in nearly two decades, consumer credit card debt has bounced back to pre-pandemic trends, and Biden continues to spend like a drunken sailor with an Amex Black. So long as his fiscal policy remains this inflationary, Powell will need to press his foot on the monetary brake.
Inflation may not yet be worsening on an annualized basis, but it remains more than three times too high for the Fed’s liking. The first CPI report of the year makes clear that it shows no sign of coming down any time soon.
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